U.S. networking company snaps up B.C. software firm

A California networking company has snapped up Abatis Systems Corp. of Burnaby, B.C., for $676.65-million (U.S.) -- the equivalent of more than $5.3-million for each of its employees.

The deal puts a jaw-dropping value on Abatis, a privately held, two-year-old company with 126 employees and no product revenue to date.

It also reflects the red-hot market for Internet protocol (IP) services, which are transforming the way voice, video and data traffic is being shipped over high-speed communication networks.

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Abatis makes software that lets telecom carriers offer specialized services like video conferencing at less cost. The technology is also designed to let people set up those kinds of services so that, for example, employees could set up a video conference with a few clicks of a mouse.

Its new parent, Sunnyvale-based Redback Networks Inc., makes tools that allow network providers to offer more billing and service options. The deal for Abatis is the second time Redback has bought a company with a Burnaby presence. The first was the $4.3-billion acquisition of Siara Systems Inc., based in California but with research and development facilities just around the corner from Abatis.

"The reason this marriage works so well is that there is absolutely no product overlap," Abatis president and chief executive officer John Seminerio said yesterday.

The deal adds dozens of new stock market millionaires to Vancouver's growing high-technology community. Based on the value of shares exchanged in the transaction, "some of our employees are millionaires, and some are multimillionaires," Mr. Seminerio said. "There's enough wealth here that it will make a difference in their lives."

Abatis products are also designed to let carriers provide a guaranteed level of service and avoid the echoes and jerky images that can affect IP transmissions.

Under the terms of the deal, Redback will issue about 5.2 million shares to acquire all of the outstanding shares, options and warrants of Abatis.

Redback shares closed up $8.50 yesterday at $130 on the Nasdaq Stock Market.

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Abatis was founded in 1998 by Adam Lorant, vice-president of marketing, and Paul Terry, vice-president of R&D and chief technology officer. The pair came to Vancouver to run a division of Newbridge Networks Corp.

Mr. Lorant said Newbridge founder Terry Matthews provided valuable guidance. Both Newbridge and Mr. Matthews, through his personal investment arm Celtic House International Corp., are shareholders of Abatis. The remainder is owned by management and employees.

Observers say the founders executed a brilliant plan that put them at the forefront of an extremely hot market.

"Paul Terry is one of the most brilliant minds in data networking anywhere," said Brent Holliday, a partner with Vancouver-based venture capital firm Greenstone Venture Partners.

Like several other venture firms in Canada and the United States, Greenstone had talked to Abatis about a possible financing. But when Redback came to the table, all of those talks were off.

Abatis is to become a Redback subsidiary, with Mr. Seminerio becoming the general manager of the Vancouver division. The transaction, which is subject to regulatory and shareholder approval, is expected to close in the fall.

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Mr. Terry and Mr. Lorant, who were exhilarated but tired yesterday, say they have no immediate plans to change their routines or their goals.

"It's not about making a gazillion dollars and sitting on the beach," said Mr. Terry, adding that the market for IP services is still in its infancy.

Mr. Lorant agreed, adding that the deal gives Abatis access to a 160-member sales team and a global customer base.